Plaintiffs Win Right to Sue Lawyers in Malpractice Case

By PETER PASSELL

Published: September 11, 1997

Eight years after a chemical plant explosion killed 23 people and injured hundreds in Houston, plaintiffs accusing a wealthy, influential law firm of malpractice in negotiating their multimillion-dollar settlement have finally won the right to take their suit to a jury.

If the 46 plaintiffs are successful, the firm that made the deal could be forced to forfeit as much as $65 million in fees.

Even if the malpractice suit is settled, it is bound to embarrass the Texas Bar Association, which earlier ignored the accusations of unsavory legal practices, and a Texas judge who has denied the plaintiffs a day in court for the last five years.

Most important, argues Lester Brickman, a specialist in legal ethics at the Cardozo Law School in New York, it highlights ''the all-too-common pattern'' in mass tort and class-action cases in which the lure of fat, easy settlements tempts lawyers to put their own interests ahead of their clients'.

The plaintiffs in the suit against the Phillips Petroleum Company, who were the families of 126 victims of the explosion, were represented by the law firm of Umphrey, Burrow, Reaud, Williams & Bailey, and settlement was reached. In such a case, known as a mass tort, all of the individual clients suing one defendant have retained the same lawyer or firm.

''When a plaintiff deals one-on-one with his lawyer, he has some input,'' Mr. Brickman said. ''But when you've got 50 or 500 clients, there's just no accountability.''

Forty-six of the plaintiffs then sued Umphrey Burrows, saying the firm had made a deal for all of them without their knowledge and consent, which would make the settlement void under Texas law. The plaintiffs are now represented by little-known lawyers working on a shoestring budget.

This story began eight years ago, when about 40 tons of chemicals ignited at the petroleum company's Houston complex, killing 23 workers and injuring hundreds more. The union at the plant steered victims' families to Umphrey Burrow, which had close ties to the union.

The Umphrey Burrow partners were all very successful independent practitioners. The firm had been formed as a sideline to combine forces on their asbestos injury cases, a source of hundreds of millions of dollars in legal fees in the 1980's. And its lead partner, Walter Umphrey, was a potent force in state Democratic politics.

In February 1991, Umphrey Burrow had urged those who were suing Phillips to take settlement offers ranging from $25,000 to $9.5 million. Some who objected were given more. Most accepted sums in a settlement that totaled $190 million; $65 million went to Umphrey Burrow and lawyers who referred cases to them.

But a 39-year-old mechanic named Silverrol Ferguson, who had received $500,000, later complained that Umphrey Burrow had not examined his medical records before negotiating his settlement. When the Texas Bar Association refused to investigate, Mr. Ferguson helped to organize other plaintiffs to sue Umphrey Burrow.

No lawyer in Houston would take the case. But the group, now numbering 46, did recruit William Skepnek from a small firm in Lawrence, Kan. Mr. Skepnek was later joined by Steven Smoot, a lawyer in Austin who had formerly prosecuted ethics violations for the Texas Bar.

Evidence gathered in pre-trial discovery suggests that Umphrey Burrow negotiated a single settlement for all 126 plaintiffs, and then divided the money among them.

''Why else,'' Mr. Skepnek asked, ''would Umphrey Burrow worksheets show some individual settlement demands were lowered in order to keep the total to $190 million? Why else would other documents show that one client, Gary McPherson, was initially offered $1.6 million by Phillips, but ended up with just $1.2 million?''

Representatives for Umphrey Burrow, as well as the Phillips' lawyer, the blue-chip firm of Fulbright & Jaworski of Houston, deny that such ''aggregation'' took place.

This issue is no mere technicality. While combining cases simplifies negotiations for the lawyer and reduces the risk that there will be protracted struggles over some claims, it is illegal in Texas and in virtually every jurisdiction nationwide unless the plaintiffs know of the tactic, know what others would receive and agree to the division.

Texas also penalizes lawyers, requiring them to forfeit their fees when they breach their fiduciary duty in this way. And for good reason, contends Thomas Morgan, a specialist in legal ethics at the George Washington University Law School in Washington.

''Each plaintiff has an individual right to recovery that is potentially compromised when more money for one means less for the others,'' Mr. Morgan said.

The state court that approved the settlements might have served as a check on potential conflicts of interest between the pursuit of a quick settlement by Umphrey Burrow and the interests of each client, especially where claims were settled on behalf of the victims' children.

But the judge in the case, Alice Oliver-Parrott, was a former colleague of David Burrow, a principal in Umphrey Burrow, and was still receiving payments from his firm for past work.

A year and a half after a trial date was set and just a few days before the trial was to begin, Judge Mark Davidson of District Court, rejected Mr. Skepnek's routine request to practice law in Texas in this one case on the grounds that Mr. Skepnek was not nationally renowned.

And when the case, which was to have been heard by a jury, went to court after another year -- Mr. Skepnek joined the Texas bar under a reciprocity agreement -- in February 1995, Judge Davidson threw the case out, saying that aggregation might have taken place but that there was no evidence Umphrey Burrow harmed its clients.

Last month, part of Judge Davidson's decision was overturned, virtually assuring that the case could proceed.

''The trial court erred in holding that a claim for fee forfeiture requires proof of damage,'' wrote a three-judge panel from the Texas Court of Appeals, in Houston. The panel set guidelines for a jury to decide how much should be forfeited by Umphrey Burrow if aggregation was proved.

Kenneth Tekell, Umphrey Burrow's counsel, pointed out that the judges had rejected a separate ground for appeal: the plaintiffs' argument that they had sufficient evidence to proceed with a trial on a general negligence claim.

''The court told them, 'We don't want to hear more of this whining about the sizes of the settlements,' '' Mr. Tekell said.

But Umphrey Burrow could still lose all or part of the $11 million fee it charged the 46 plaintiffs, which came out of their portion of the settlement. And Mr. Skepnek said he would ask the court to take back the entire $65 million fee.

The fallout from the appellate court decision may spread. If the settlement had indeed been negotiated in aggregate, lawyers from Fulbright & Jaworski, who represented Phillips, must have known it -- and would face disciplinary action. Otway Denny, a partner in Fulbright & Jaworski, said that ''it would be inappropriate to discuss the appellate court decision.''

Mr. Skepnek and Mr. Smoot have also sought to reopen the settlement with Phillips on the grounds that ''the lawyers breached their ethical duties.''

And judging by one separate settlement Phillips made after the explosion, a new deal could prove expensive. The estate of Mary Kay O'Connor, one of a handful of victims not represented by Umphrey Burrow, received $40 million, eight times more than the largest amount any individual received in the Skepnek-Smoot group.

But as this litigation plays out, George Priest of the Yale University School of Law sees it as a welcome airing of an important, neglected problem in legal ethics.

''In large group action,'' Mr. Priest said, ''it is fanciful to think that plaintiffs retain control or that individual awards have much to do with individual claims.''

In class-action suits, the step beyond mass tort cases victims too often become an ''abstraction,'' he said.

Photo: William Skepnek, left, and Steven Smoot, are lawyers representing a group of plaintiffs who are accusing a Texas law firm of malpractice. (F. Carter Smith for The New York Times)